Discussing the JOBS Act’s Impact on Capital Flow in the U.S. Market

Much of the focus on how the JOBS Act may be able to transform the flow of capital in the United States has been on new pathways being opened. Equity crowdfunding, crowdfinanced debt, locavesting, the new opportunities for accessing capital outside of the traditional banking system has sparked the imagination of many.

However, many active participants in the traditional capital markets are equally as excited about the potential for change. While traditional investment banks don’t seem to think crowdfunding is going to change much, and the sort of small-term locavesting has always existed off their radar, the changes to the rules for private capital raising stand to make things much easier for companies raising capital through traditional routes as well.

The chance to have more shareholders, to solicit accredited investors, and eased rules on IPOs mean investment banks like ROTH Capital Partners have as much to look forward to as small businesses turning to their communities to fund expansion.

And that focus was on display March 9-12 at the 26th Annual ROTH Conference in Dana Point, CA. There, several different panelists speaking on very different subject matter touched on the ways they imagined the JOBS Act changing the process for raising capital, even for the financial world’s more traditional actors.

At Sunday’s panel on the effects of the Affordable Care Act on the health care industry, Poliwogg CEO Gregory Simon observed that making it easier to raise capital for health care companies could translate to more funding for research into groundbreaking new therapies.

“That’s what the JOBS Act allows,” Simon said. “The JOBS Act does two really important things to change the future of all securities but especially health. Private companies have far more investors, so the price of an investment can fall by [to a] tenth [of previous levels]. So instead of $200,000, you can now get into a private company for $20,000.

“But the second thing is, your industry in the health space, is the only industry the first amendment did not apply to. In the private offerings, you could not advertise a private offering to the public. You can advertise all the seven sins on billboards in Times Square, but you couldn’t say ‘we’re raising money for a [private] company doing an Alzheimer’s Trial’ … or you would go to jail.

“That has all changed, now you can advertise a private offering to the world. You still have to be accredited to invest, but the cost of entry is much lower. … If we’re going to make progress in the health space, we have to connect the basic research funding and the [venture capital] pharma funding to get more ideas into the pipeline.”

Discussions at the Next Trends in Solar Panel delved into the ways changes in the approach to financing could drive that industry in the coming years, and OTC Markets Group’s Director, President, and CEO R. Cromwell Coulson spoke on the tremendous promise contained in the SEC’s new Reg A rules at the Ready, Set, IPO Panel on Tuesday.

“Probably the most exciting change which is right on the SEC’s docket today is Reg A-Plus, and I actually spent Friday in Washington at the Treasury and the SEC on Reg A-Plus,” he said. “And Reg A-Plus is going to allow companies to raise up to $50 million in an SEC registered offering where the shares are free-trading but you’re not becoming a SEC registered company. You’ve got a lighter reporting requirement, right now they’re only asking for annual audited financials and semi-annual reporting. The shares will be free-trading and pre-empted from state blue sky. So this is a huge opportunity for smaller companies. … Reg A-Plus is going to be an exciting change.”

Simon, though, did emphasize some of the potential for populations underserved by the world of finance and the way crowdfunding could give those populations a chance to participate in capital raising in a way that could affect them positively, using the example of communities investing in their hospital systems.

“How does the average citizen help change things? Well, now with the JOBS Act and with crowdfunding … you can involve the community by letting more people invest small amounts of money, by which I mean $1,000 to $10,000, then you would be able to get the community to invest in its own solution to its own problem,” Simon said.

“And you might think ‘Well, communities don’t have that money.’ Well, you’re wrong. The average lottery ticket buyer makes $13,000 a year and spends $650 a year on lottery tickets. Five percent of their income to lottery tickets. Those people have never been allowed to invest in their neighbors business, whether it was a yoga studio or a dry cleaners or an ice cream shop or a grocery store, but now you are about to be able to.

“So if you were to go to Detroit, or if you were to go to northeast Washington, D.C. and say ‘we’re not going to close your hospital, we’re going to change your hospital and we’re going to let you own part of it.’ You’re going to find a very interesting response, because nobody has ever asked that question. And that’s one way communities can help themselves.”